Jose Gil /
Jose Gil /

The litany of debt goes on and on:

  • Students owe more today on college loans than all Americans owe on all credit cards;
  • The average student owes more than $33,000 today, easily exceeding the average first salary most can expect — assuming a job materializes in the first place;
  • Fifteen percent of grad students finish school with six-figure debts, according to Edvisors, an organization which provides guidance on education payments, compared to 0.3 percent of undergraduates;
  • According to MyBankTracker survey, 30% of respondents would be willing to give up an organ to eliminate their student debt.

“A good rule of thumb,” says Mark Kantrowitz, publisher of Edvisor, “is that undergraduate and graduate students should borrow no more for their entire education” than they can expect in a first salary.

Of course that seldom happens, thanks in part to the marketing wiles of academic institutions and the recent push by government to provide a stream of easily obtained loans as a cure for job loss or career stagnation. ”There’s lots of money out there,” cheers former U.S. Secretary of Education Arnie Duncan to a group high school students. “We want to give you money.”

We went to school ourselves and uncovered these five dirty secrets about big debt and paying it off.

1. Forget about bankruptcy protection.

You can resort to bankruptcy if you run your business into the ground, underfund your pension or engage in a messy divorce. But you can’t turn to bankruptcy if you owe a student loan. Congress in its wisdom specifically restricted that common avenue of debt resolution. Indeed, student loans are considered the most difficult debt in which to qualify for a hardship status under the law.

2. Your lender can go after your tax refunds

The federal government has the authority to tag your tax refund, no matter how hard you have tried to pay off your loan. In fact, in some cases, it is entitled to go after your retirement funds by docking the money the government sets aside for your special Social Security account.

3. Forget about borrowing your way out of debt

Your inability to repay student debt can impact your credit score, which in turn impacts your ability to borrow money for any purpose, including obtaining a mortgage for your home or a loan for your small business. You can’t borrow your way out of the hole. Some employers even weigh credit scores in making hiring decisions, meaning it’s more difficult to get a good job to pay off the loan.

4. In some cases employers can help out.

This is especially true in professions such as medicine, law or engineering in which a high level of education is a requirement. The hiring institutions understand that it costs money to gain the expertise required for the job. So they have programs that can ease the pain of repayment or build a repayment mechanism into your salary package.

5. The cost of homes, cars and medical care are no longer at the top of the debt pile

Paying off student loans — now increasing at a rate of $2,853 per second — easily outpaces the altitudinous repayment costs of homes, cars, appliances or medical care in America. Prior to the 2008-2009 recession, student loan debt was classified as the smallest household debt out there. Now, it’s the opposite, in part because Americans borrowed more money for school in the view that education would magically lift them from all their financial woes in a rapidly changing job market.

The magic seldom worked as advertised.

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